Virginia Consumer Sentiment and Inflation Expectations Report for May 2024

Consumer sentiment slipped 3.4 percentage points since February 2024 to 69.8. Concerns about today and the near future fuel the modest retreat. The greatest frustrations are inflation and high prices, with near-term expectations rising to 2.8%. Inflation remains above 3%, driven primarily by shelter and added pressures from vehicle insurance, maintenance and repairs. 

Over a quarter of respondents (27%) report that their household finances are better today than a year ago – up slightly from last quarter – although only 35% believe that now is a good time to buy large, durable goods like a refrigerator, down five percentage points from February. The Virginia Index of Current Conditions (ICC) is 61.3 in the second reading of 2024, down from 65.0 in the first quarter of 2024 despite a plethora of positive economic news: The stock market is at record levels; wage growth continues to outpace inflation, giving workers more purchasing power; the unemployment rate has been below 4% for 27 consecutive months; the advance estimate of gross domestic product (GDP), a measure of overall spending, was up 1.6% in the first quarter of 2024; and the nowcast from the Federal Reserve Bank of Atlanta for the second quarter is currently 3.6%.   
   
Thirty-five percent of Virginians believe their household finances will improve over the coming year compared to 20% who anticipate growing challenges. Fifty-four percent think the coming few years will include periods of high unemployment and economic recession, up dramatically from 48% last quarter. The Virginia Index of Consumer Expectations (ICE) was 75.2 in May, down three points from the previous quarter and one year ago. Comparatively, the final national ICE was 68.8 in May, down more than six points since February 2024. The decline in optimism about the coming years is primarily attributed to high price levels.  

Inflation, as measured by the Bureau of Labor Statistics' Consumer Price Index (CPI), was 3.4% in April 2024 and has been below 4% since May 2023 but above the Federal Reserve Bank's 2.0% target (although as gauged by the PCE Index rather than the CPI). Between April 2023 and April 2024, food and gas prices rose by 2.2% and 1.2% nationally, respectively, so neither are major contributors to the above target inflation rate. Two significant contributors are shelter and vehicles. Year over year, shelter inflation, including rent, increased 5.6%. While used and new car inflation is abating (-6.3% and -0.4%, respectively) after the rapid increases in 2022 , people are keeping their cars longer and driving more miles, requiring more repairs and pushing up insurance premiums. An insurance premium reflects the expected loss for the insurance company, which will increase with car value and maintenance and repair costs. Over the past year, vehicle insurance and maintenance and repair inflation were 6.7% and 7.6%, respectively. Collectively, shelter, vehicle insurance, and repair and maintenance account for over 40% of the Consumer Price Index, thus contributing significantly to overall inflation. 

Virginians anticipate that prices will rise by 2.8% over the coming year and 3.6% over the longer term; the short-term price expectation is up from 2.5% last quarter but remains within the 2.2-3.3% band sustained over the two years before the COVID-19 pandemic and subsequent run-up in inflation. The long-term expectation is down slightly from 3.7% in February; both are equal to their 12-month average. The lack of substantial movement in these expectations indicates that Virginians are slowly growing more confident in inflation moderation and price stability, which typically reduces worry and facilitates budgetary planning, albeit not enough to maintain consistently rising consumer sentiment. Nationally, the year-ahead inflation expectation is 3.3%. 

Analysis 

"Virginians are slightly less optimistic about the current and future economy than earlier in the year," said Dr. Alice Louise Kassens, John S. Shannon Professor of Economics and senior analyst at the Roanoke College Institute for Policy and Opinion Research. "The most common reason given for the pessimism is high prices. Although price growth has stabilized at 3.5-4% annually, down considerably from a few years ago, that does not mean that goods and services are cheaper. The prices of big-ticket items like shelter, vehicle insurance, and vehicle maintenance and repair are rising rapidly, likely leading to sticker shock and frustration. Thankfully, food and fuel inflation are low, which provides some relief to consumers. Despite the frustration, consumer spending remains robust. A strong summer travel season is expected, bringing tourism dollars to many locations, including some in the commonwealth."   

Methodology 

The Institute for Policy and Opinion Research (IPOR) conducted interviews for the Roanoke College Poll at Roanoke College in Salem, Virginia, between Feb. 11 and Feb. 19, 2024. A total of 760 completed interviews came from random telephone calls to 460 Virginians, and 300 responses were drawn from a proprietary online panel of Virginians. Interviews were conducted in English. Cellphones constituted 56% of the completed phone interviews.   
   
The landline sampling frame was created by random digit dialing, with area code and exchange coverage made proportional to population density in Virginia, and services from Iconectiv, LLC, were used to remove numbers that had been ported to a cellular provider. Marketing Systems Group provided the cellular dialing frame using a combination of random digit dialing and randomly selected numbers with a Virginia billing zip code to ensure representation. Lucid, LLC, facilitated the online panel with completion time and attention check questions used for quality control. IPOR regularly uses bootstrap analysis of post-survey results to control for quality within the blended frames.  
   
Questions answered by the sample of 760 respondents are subject to a weighted error margin (including design effect) of plus or minus 4.1% at a confidence level of 95%. This means that in 95 out of 100 samples, such as the one used here, the results should be at most 4.1 percentage points above or below the figure obtained by interviewing all Virginians with a home telephone or a cellphone. Where the results of subgroups are reported, the error margin is higher.   
   
Quotas were used to ensure that different regions of the commonwealth were proportionately represented. The data were statistically weighted for gender, race, and age to match Virginia data in the 2022 one-year American Community Survey (ACS).   
   
A copy of the questions and all toplines may be found here. 
  
More information about the Roanoke College Poll may be obtained by contacting Dr. Alice Kassens at kassens@roanoke.edu or 540-375-2428 or the Roanoke College Public Relations Office at 540-375-2282 or rcnews@roanoke.edu. roanoke.edu/IPOR